FREE FINANCIAL ADVICE

The UK ‘s mortgage market has changed profoundly in the last two weeks as the full effect of the Coronavirus has started to be felt. Lenders have been told to allow repayment holidays; moving home is virtually banned leaving swathes of home­ movers in limbo; thousands of mortgage products have been withdrawn and the bank base rate has been reduced to 0.1%, the lowest in history.

Not surprisingly, many clients have been making contact to ask questions regarding their mortgage.

Some questions you may have regarding your current mortgage position:

I have exchanged on a new property, but not moved in. What should I do?

The Government has stated that they do not want you to move during the lockdown unless it is in exceptional circumstances. If you can, therefore, delay your move then you should. Mortgage lenders are now extending the expiry date on offers by three months to hopefully allow more time, while many solicitors are adding new clauses into contracts in case purchases don’t progress.

I have completed on a new property, but not moved in. What should I do?

As with exchanges, the Government is requesting that moves don’t occur unless there is no option. If you do have to move, then take extra precautions to adhere to the social distancing rules.

Can I qualify for a repayment holiday?

All lenders are required by the Government to offer borrowers the opportunity to take a three-month payment holiday. This is true for all homeowners, Buy to Let mortgages and for clients who have used the Government’s Help to Buy scheme.
The repayment holiday is available to borrowers who are up-to-date on their mortgage payments and not already in arrears.

Should I take a repayment holiday?

We believe that over 1 million borrowers have already requested a holiday and if you are in a position where you will struggle to meet your monthly mortgage payments, then it is a sensible thing to do. You won’t need to go through a means test or demonstrate your income drop. There also isn’t a fee to pay. However, I would stress that this is not free money and that you will need to make up the missed payments in due course. Instead at the end of the three month holiday, you will n ed to agree higher repayments moving forward with your lender or extend the term of your mortgage. As such, taking a holiday will cost you more in the longer-term. My recommendation would, therefore, be to not take a holiday unless you really need to.

Also, if you are coming up to the end of term on your existing mortgage deal, then be aware that taking a repayment holiday could impact on whether or not you can qualify for a re-mortgage or a new deal with your existing lender. Please, therefore, talk to me first before applying.

It’s important that you don’t cancel your direct debit to the lender. Simply canceling the direct debit may cause issues later down the line when you come to the end of your payment holiday and could cause you to miss a mortgage payment in the future. A missed mortgage payment will show on your credit file.

I can’t get through to my Lender. What should I do?

All of the lenders have been swamped with calls from borrowers about repayment holidays at a time when they were also trying to move significant numbers of staff to remote working. Many have consequently struggled to cope, leading to long waiting times. I would, therefore, encourage you to wait a few days for things to quieten down and try again or alternatively look on the lender’s website. Most have detailed information on their response to COVID-19 and how to request a repayment holiday.

I am coming to the end of my current mortgage deal. Should I re-mortgage? A significant number of products, particularly trackers and those at higher loan to value’s, have been withdrawn by the lenders in recent days. However, over 10,000 products are still available and rates remain at historically very competitive levels. Funding may become more constrained in the future, so if you are within six months from the end of your current deal, please get in touch and I’ll talk you through the options available.

My income has dropped. How will this impact my ability to get a mortgage? All lenders look at your current income and any expected or known changes when they assess whether you can afford a mortgage. With access to a comprehensive range of lenders from across the market, I can help you find a mortgage that’s right for you and that is affordable based on your income and expenditure.

Your home may be repossessed if you do not keep up repayments on your mortgage.

The 2020/21 tax year started at the stroke of midnight between the 5th and 6th of April. While many individuals leave tax planning to the end of the tax year, you can look to maximize the benefits by using your personal tax allowances* and reliefs straight away. Please get in touch to take advantage of one or more of the following:

Income Tax

The tax-free personal allowance remains unchanged at £12,500.

Basic rate tax of 20% will be payable on income above the tax-free allowance and up to the higher rate threshold of £50,000.

Additional rate income tax remains the same at 45% on income above £150,000.

If you are married or in a civil partnership, you may be able to save money by structuring your finances as a couple to ensure you are using both spouse’s tax allowances. This could be an especially good idea if one spouse pays tax at a lower rate than the other.

ISA

The Junior ISA allowance has risen to £9,000 from £4,368 for children under 18.

The adult ISA allowance of £20,000 remains unchanged.

If you are 16 or 17 this tax year (or have children of these ages), they can benefit from both the Junior ISA allowance and adult ISA allowance (cash only).

Pensions

Saving into a pension comes with great tax benefits. For a start, investments in your pension are free from Income Tax and Capital Gains Tax. Pension contributions up to your annual allowance will also receive an automatic 20% top-up from the taxman, and higher-rate and additional-rate taxpayers can claim back another 20% or 25% through their Self-Assessment.

Because of these generous tax rules, there is a limit to the amount you can pay into your pension. Each year, you can contribute as much money as you earn, usually up to £40,000 (although these tapers down to £4,000 for higher earners).

If you have not used your annual allowance in the last three years, you may also be able to make extra contributions by using carry forward.

Minimum pension contributions (paid by employers and employees) through auto-enrolment remain 8% (3% employer and 5% employee) of band earnings.

The lower limit of the qualifying earnings band will increase from £6,136 to £6,240. This means the first £6,240 of an individual’s earnings don’t count towards auto-enrolment contributions. The upper limit is £50,000.

The Lifetime Allowance for pension savings has increased to £1,073,100.

The State Pension has increased with the full allowance now £175.20.

Other Savings Allowances

The Personal Savings Allowance, which gives you tax-free savings interest, remains £1,000 for basic rate tax-payers. This reduces to £500 for higher rate taxpayers and additional rate taxpayers do not get any allowance.

Although only suitable for individuals with a higher appetite for risk, there is no change to the taxation of Venture Capital Trusts, so you can invest up to £200,000 and get up to 30% income tax relief.

Similarly, the taxation of Enterprise Investment Schemes is unchanged, meaning you can invest up to £1 million and claim up to 30% income tax relief.

Inheritance Tax

Each tax year you can make a range of tax-free gifts. These leave your estate immediately and won’t be taken into account when calculating your Inheritance Tax bill.

All gifts to your husband, wife or civil partner (as long as the UK is their permanent home).

Gifts of up to £3,000 each tax year, which can be carried over one year for a total of £6,000. This is useful if you did not use it in the 2019/20 tax year.

Unlimited individual gifts of up to £250 per person. Although not to anyone who has already received a gift of your whole £3,000 annual exemption.

Wedding gifts of up to £5,000 for a child, £2,500 for a grandchild or great-grandchild, or £1,000 to anybody else.

Unlimited payments towards the living costs of a child under 18 or in full-time education, elderly dependant or ex-spouse.

Unlimited gifts from surplus income that won’t affect your standard of living.

The Residence Nil Rate Band has risen to £175,000 from £150,000.

This can be added to the £325,000 Inheritance Tax allowance when a direct descendant inherits someone’s main house.

Capital Gains Tax

The Capital Gains Tax allowance has increased to £12,300 from £12,000.

Married couples and civil partners will continue to be able to combine their annual allowances.

Landlord Mortgages

Landlords are no longer able to offset their mortgage interest payments against their rental income.

There is now only a 20% tax credit saving from a landlord’s mortgage interest.

Yours sincerely

Christine Cowley

Financial Adviser

*This information is based on our current understanding of the rules for the 2020-21 tax year.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes that cannot be foreseen.

The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.